Anyone practicing in Texas? Looking at moving company from MI to TX

[Hamacher]

I have a client (MI LLC that is being taxed as an S Corp.) that does web site development. One of the owners lives in MI and the other recently moved to Canada. The partner in Canada is looking at moving to TX and was wondering if it would make sense to move the company from MI to TX to save on Michigan income tax. BTW - They may sell the company in the next couple of years which is another reason he wants to move to a more tax friendly state. Any input would be appreciated.

[taxxcpa]

There is the Texas Franchise tax which is a tax on gross profit with some options on how to calculate the taxable amount.
It would be best to look at this tax and compare to the income tax otherwise due. Probably the Franchise tax would be lower or maybe even zero if revenue is small enough.

[DaveinTexas]

just to add to this reply

There is the Texas Franchise tax which is a tax on gross profit with some options on how to calculate the taxable amount.
It would be best to look at this tax and compare to the income tax otherwise due. Probably the Franchise tax would be lower or maybe even zero if revenue is small enough.

The Franchise Tax is imposed on all corps and LLCs whose gross income is $1,030,000 or more. There is zero FT on all income below that threshold. Also, there is no state income tax so maybe all shareholders should consider the move

[Hamacher]

FT Calculation

The Franchise Tax is imposed on all corps and LLCs whose gross income is $1,030,000 or more. There is zero FT on all income below that threshold. Also, there is no state income tax so maybe all shareholders should consider the move

Is there a rate that is applied over the $1,030,000? Their annual sales are around $3,000,000 and may end up selling the business in a few years for around $6,000,000.

[DaveinTexas]

Tax rate

Yes, the tax rate is 1% of the margin (taxable profit). The margin is calculated 3 different ways (you are taxed at the lowest margin):
1. Gross sales minus Compensation (W2 wages plus flow through profits to shareholders). Compensation (W2 wages) for officers is limited to $300,000. No limit applies to non-officer wages.

2. Gross sales minus COGS. COGS is not applicable to service businesses. There are also some deductions not allowed for COGS (advertising, facilities rent and a few others).

3. And lastly, simply mulitply gross revenue by 70% and then by 1%

Whatever is the lowest of these three figures, you then multiply it by 1% to arrive at the franchise tax. The tax rate is cut in half for retail businesses (this is a bit convuluted so be cautious if you are applying this lower tax rate.

This is not meant to be a conclusive method of determining the tax but it will get you started. You can obtain the instructions to the Franchise Report on the TX Comptroller's website.

[taxxcpa]

TX Franchise tax

Go to the link below and click on Franchise tax

http://www.window.state.tx.us/